Edge AI Shift Will Drive AI PC Market Expansion In 2025

Key Takeaways

• ASUS is poised to benefit from AI trends, with edge-based AI and AI PCs driving potential revenue growth and increased market share.
  
• Strategic moves, like expanding AI server markets and adjusting to geopolitical challenges, aim to boost competitiveness and stabilize future earnings.
  
• Delayed payments, pending tariffs, and geopolitical tensions present potential financial risks through increased costs, disrupted supply chains, and uncertain revenue streams.

Catalysts

Researches and develops, designs, manufactures, sells, and repairs computers, communications, and consumer electronic products in Taiwan, China, Singapore, Europe, the United States, and internationally.

• ASUS is strategically positioned to capitalize on the trend of AI shifting from cloud to edge-based AI. This shift presents opportunities for ASUS to grow its comprehensive AI solutions, potentially impacting future revenues positively.
  
• The anticipated introduction of new generations of GPUs (NVIDIA RTX 50 Series) and AI PCs in 2025 is expected to drive significant revenue growth, particularly in quarter 2, following a preparatory period in quarter 1.
  
• By expanding its AI server market, particularly in Europe and the U.S., and leveraging its American production line set up, ASUS aims to enhance service efficiency and competitiveness, potentially increasing future revenue from the AI server segment.
  
• The strategic focus and investment in the growing AI PC market, aiming for over 30% market share in 2025, suggest potential significant revenue and market share growth as AI PCs become more mainstream.
  
• ASUS's proactive response to geopolitical tariff challenges, including inventory adjustments and shifting production lines, is aimed at maintaining operating margins while ensuring product price competitiveness, which could positively impact future earnings stability.

ASUSTeK Computer Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ASUSTeK Computer's revenue will grow by 14.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 6.1% today to 5.0% in 3 years time.
• Analysts expect earnings to reach NT$41.6 billion (and earnings per share of NT$57.29) by about March 2028, up from NT$33.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting NT$48.2 billion in earnings, and the most bearish expecting NT$33.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.9x on those 2028 earnings, up from 14.4x today. This future PE is lower than the current PE for the TW Tech industry at 21.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.92%, as per the Simply Wall St company report.

ASUSTeK Computer Future Earnings Per Share Growth

Risks

• The issue with delayed payments from a significant client in India, listed as bad debt, introduces financial uncertainty and could negatively affect the company's revenue and net profit if not resolved swiftly and fully.
  
• Tariff policies from large economies pending on the horizon could increase costs, forcing ASUS to adjust prices or shift production, impacting operating expenses and profit margins.
  
• The geopolitical tensions, particularly tariffs associated with U.S. policies, may disrupt ASUS's supply chains and increase production costs, potentially affecting revenue and net earnings.
  
• Anticipated market shrink in quarter 1 2025 for both PC and server segments due to geopolitical, market shifts, and tariff issues, could indicate a risk of lower revenues during that period.
  
• Reliance on the uncertain growth of AI PCs as a major driver increases the risk of revenue volatility, especially if the expected penetration and user adoption do not meet the forecasts.

Valuation

• The analysts have a consensus price target of NT$731.333 for ASUSTeK Computer based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NT$825.0, and the most bearish reporting a price target of just NT$410.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NT$840.4 billion, earnings will come to NT$41.6 billion, and it would be trading on a PE ratio of 15.9x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of NT$654.0, the analyst price target of NT$731.33 is 10.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.